Avon Rubber has announced the acquisition of InterPuls, an Italian manufacturer of specialist milking components, for €29.75m. InterPuls extends Avon’s reach in milking from liners and internally developed claws to the full end-to-end milking point solution, in line with management’s stated strategy. With complementary technologies and markets, the Dairy growth profile has been enhanced, while the high-margin, technology-rich InterPuls products are a mirror image of Avon’s Milkrite approach. With the deal expected to be significantly earnings enhancing from FY16, Avon has yet again demonstrated its ability to create value with sustainable growth.
The acquisition of InterPuls propels Avon’s Dairy business to the very heart of the milking process and gives it an end-to-end milking point solution in line with the group’s strategy to capture more value in the milk parlour. InterPuls has developed a unique range of specialist milking components including pulsators, milk meters, automatic cluster removers and vacuum pumps, as well as investment in sensing and monitoring technologies. Avon is acquiring the business for a total of €29.75m.
We view the deal as a continuation of Avon’s strategy to evolve technology-led positions in its chosen markets. InterPuls brings several growth opportunities to the Dairy business: 1) it expands the Dairy offering to allow greater value capture in the milk parlour; 2) cross-selling of existing products into complementary geographic markets; 3) it provides critical mass to take on established OEMs; 4) accelerates new product development into sensors and monitoring equipment; and 5) adds established, high-margin business with a similar mindset to Avon.
With the acquisition of InterPuls expected to be significantly earnings enhancing from FY16, we are increasing our FY16 EPS forecast by 8% to 53.1p. With the strengthening of the Dairy business yet further, we view Avon as an increasingly dominant player, positioning it for further growth, with high-margin growth opportunities globally. With the position mirrored in Protection & Defence, we maintain our belief that Avon provides substantial organic upside opportunities from which to maintain its growth trajectory. Our SOTP fair value increases to 900p/share (previous 838p/share) as a result of the enhanced Dairy offering.